03/21/2012

EXTERNAL ENVIRONMENT ANALYSIS: THE CASE OF TESCO

EXTERNAL ENVIRONMENT ANALYSIS: THE CASE OF TESCO

Introduction

The
market environment in this generation is characterized by highly competent
industries and firms which are all competing for generating profit and loyal
clients. These industries are faced with various challenges in maintaining their
economic and
business competency to be able to stay alive and continue their success. In
this regard, marketing Methods and approach are carefully planned and initiated
to gain the ultimate objective and that is to achieve
business and firm growth. Nonetheless, external elements and aspects are not
the only elements which influence growth. In this generation, most enterprises
find that it is unfeasible to establish any kind of
sustainable economic and business competencies based on their product along.
It is common adherence that each of the successful enterprise required and
create a precise understanding of how it could establish a
consumer-centered economic and business competencies.

Along
with the changing market environment,
external market has become more complex to handle. In turn, business and
firm management had shifted their focus on their profit alone so as to stay
successfully in business. This transformation notes that industries and firms
have to completely transform their normal
business aims and purposes from being process-focused to client-centered.
Thus, to be able to bring outstanding products or services within business and
firm operations, the management should employ fine-tuned corporate
restructuring. Moreover, employing proactive consumer commitment involves the
consideration on culture and
organizational infrastructure (Lowenstein, 1997).

Industries and firms that capitalize on consumers' active participation in
corporate activities and functions can gain economic and business competencies
through greater
sales volume, positive word-of-mouth publicity, enhanced operating
efficiencies, reduced marketing expenses, and enhanced
consumer retention (Reichheld & Sasser, 1990). Primarily, the main goal of
this paper is to analyze the external environment of a specific organization,
that is, Tesco. Herein, marketing strategies analysis will be used and SWOT and
Five Forces analysis will be considered to assess external environment.

Overview
of the Organization

Tesco is
well-known as the biggest and largest supermarket in the UK which dominates the
retail industry. Tesco’s stores are continuing to expand from 98 to more than
300 and other branches in Asia. The success of this organization s the business
and firm explains is due to an excellent Operating Strategy and Management team
of Tesco (Tesco, 2010). Established on 1924, this retail industry has indeed
come a long way since its first launched store in Burnt Oak, Edgware. Today
with its 86 years in the business, the organization has become the leading food
retailer all over Britain.

Tesco
begun as a self-service supermarket in the United States in the 1930s, however,
after a few years of operations, the management had noticed that selling a
broader variety with larger stock volume and employing few staff can lower
product prices. Such realization was the beginning of greater things for this
retail industry. Though some industries fall during the War, the organization
still grows and thrives in the middle of such adversities. After 10 years, the
organization entered the British market and introduces their self-service retail
stores. Then in 1960s, the retail giant become a familiar and popular name in
the household, not only for groceries but also for other products such as
clothing, fresh food and household products. for fresh food, clothing, and other
household goods (Tesco PLC Interim Report, 2003).

The
organization continue to expand to reach more target market and built their 100th
superstore by 1985, and in 1987, the organization had announced their
£500 million plan to establish even more retail
stores. In the early year part of 1990s, the success of its petrol filling
stations earned for the business and firm Britain’s biggest independent petrol
retailer. During these years, the organization built on its success by
developing new branches concepts and new consumer-oriented initiatives. The
organization has become more popular because of breaking new grounds in food
retailing as they first introduced loyalty card in 1995 that offers different
benefits to regular shoppers while helping the business and firm discover more
about its consumers' needs. Other consumer services emerged such as grocery
home shopping, Tesco Direct for catalogue shoppers as well as the Tesco Babyclub
for new parents, and also the establishment of Tesco Personal Finance a joint
venture with the Royal Bank of Scotland (Tesco PLC Interim Report, 2003).

The organization had continued its successful streak in the 21st
century. In January 2003 Tesco accomplished the acquisition of 870 T&S Stores
in the United Kingdom; 450 of which has been converted to Tesco Express. In
addition, they also opened some international branches such as in Taiwan in 2000
and, in May 2002 they opened their first store in Malaysia in a joint venture
with Sime Darby Sdn Bhd. In 2002, Tesco has acquired “HIT” chain of
hypermarkets in Poland. Such activity enabled Tesco to add 13 hypermarkets to
the Polish business, and enabled them to reach market leading position (Tesco
PLC Interim Report, 2003).

External
Environment

Success in
any organization which operates in both profit and marketing acquisition lies on
the capability of the leaders and management to position and establish their
products/services in the market environment. In addition, the capabilities of
the firms as well as its management to compete and maintain a competitive edge
among its rival industries is another basis to note that it has been able to
reach their full market potentials. However, there are external factors which
affect the competencies of an industry. To analyze, Tesco’s market environment,
Porter’s Five Forces Model and SWOT analysis will be used.

SWOT ANALYSIS

STRENGTHS

WEAKNESSES

1.Broad
knowledge in retail sectors and self-service industries

2.
Efficient top management and rank & file for operation and maintenance

3.
Consumer loyalty

4.
Financial investment and acquisition approach.

5.Strong
Information technology returns through internet shopping

1.Low
supervision in the international market

2.High
turnover of employees because of internal issues

OPPORTUNITIES

THREATS

1.
Expansion and reach for international target market

2.Healthy
market environment

3.Online
opportunities through e-business approach.

1.
Economic restructuring

2.
Intensified competition

3.
Government regulation and policies specifically for international
market.

The strength of the
external environment in an industry identified the extent to which investment
inflow happens and drives the return to having free market level, hence the
ability of the company to sustain their return of investments. The underlying
structure of a company is reflected on the strength of the external forces,
which should be determined from the short-run elements which can affect the
competencies and profitability of the company. The external environment in
which a retail giant belongs includes the rival firm, substitute products, power
of buyer, supplier power, and the potential entrants of new market. These
elements are the ones which contributes to how the company functions and
operates in the market environment. In addition, this also helps the company
identify what aspects should be enhanced or removed.

INDUSTRY RIVAL FIRMS

Awareness, fixed or variable costs, capacity, differentiation, behaviour,
pricing, and market and corporate growth are some of the external factors that
are considered in this force. Accordingly, there is a need to determine the
rival firms of Tesco which affect their market position. In the retail sector,
there is a high concentration for rivals. This is proven with the numerous
number of their rival firms, come of the top rivals which include ASDA Group
Limited, BP PLC, ExxonMobil Corporation, Carrefour S.A., J Sainsbury PLC, The
Big Food Group PLC, , Royal Dutch/Shell Group, Marks & Spencer Group PLC,
Somerfield,
Safeway Inc., Wm Morrison Supermarkets
PLC, The Boots Group PLC, John Lewis Partnership PLC and The Carphone Warehouse
Group PLC Rivalry tends to increase as the number of rival firms increases and
as they become more equal in line with capacities and sizes. Hence it can be
considered that the power of rivalry in the retailing industry where Tesco
belongs is very high. In addition, rivalry is usually higher when demand for
the product is slowly growing, just like the case of the retail sectors,

POTENTIAL ENTRANTS

As mentioned by Davies & Lam (2001), barriers to entry are relative to economies
of scale, the emergence of learning and experience curve effects, capital
requirements, cost disadvantages independent of size, brand preferences and
consumer loyalty, access to distribution networks and government and
international actions and policies. For example, economies of scale, indicates
that the more scales in the economy, the lesser the threat of entries if such
cannot immediately get larger market shares, then it will obtain major cost
disadvantage. Being in the business for almost 86 years, there is a greater
threat of entries in the retail sector, specifically with the experiences that
Tesco have.

BUYERS

Accordingly, it said that the leverage and bargaining power of consumers tend to
be relatively higher if consumers are few in numbers and when they buy in larger
quantities and when consumers’ purchases delegates a sizable rate of the
retail industry’s total sales. In the retailing sector, the number of consumers
is very large, and most of them do not buy in bulk. In this regard, it can be
said that the bargaining power of consumers is weak for this sector. Although
this is the case, Tesco is still fortunate since their rival firms are not as
large as their own organisation, making it have the market disciplined, and the
rival firms likewise have a disciplined strategy in price setting, partly due to
set regulation of the government and trade department.

SUPPLIERS

A group of supplier industries is considered to have more bargaining power when
the input is, in one way or another, essential to the buyer and when the
supplier industry is conquered by a few large producers that enjoys reasonably
secure market leadership and are not pressured by intensely competitive
situations (Davies & Lam 2001). In line with the industry where Tesco belongs,
the company has extreme advantage of being able to decide for the prices that
they want in which suppliers agree to ensure that the retail giants will always
have good relationship with them. Moreover, , when the suppliers’ respective
goods are differentiated in a level that it will be costly and difficult for
clients to find other supplier, the power of supplier eventually increases, In
the case of Tesco, there are different suppliers in which Tesco can choose from
and being recognised as a retail giant, the company can control even suppliers
prices since they have the resources.

SUBSTITUTES

The availability as well as the prices of acceptable substitutes for a product
places a upper limit on the prices which the firms of that product can charge,
and unless the retailer of a product can enhanced the quality, decrease in terms
of prices via cost reduction, or otherwise product differentiation is entailed
from their substitutes In the retail sector, in which Tesco belong, there are
different rival firms that can provide what Tesco can offer. Such amount of
rivalry is the driver that triggers the prices of all industries. Hence, it can
be said that Tesco belongs in a higher degree of substitutes with all their
rival companies surrounding them.

Recommendations

It can be
said that in the external environment. The most essential aspect to consider is
the target market. In the case of Tesco, the external environment is said to be
in a highly competitive situation. To be able to ensure that the company can
manage their external environment and still survive in the business market, it
is recommended that they provide efficient strategies, specifically in terms of
handling their consumers. In this regard, the following are some of the
recommended approach that tesco can use to ensure competencies in the market
environment.

Clubcard: Every Little Helps.
The loyalty of existing consumers delegates substantial entry barrier for
different rival industries. Excessive resources are needed to enter this kind
of market in which consumers must be cajoled away from an established brand in
which they have been satisfied for so long. In this regard, since Tesco is
generating more and more profits and competencies because of their loyal
clients, it is recommended that they will continue this approach and ensure that
other consumers will be loyal to their company.

Cause
Related Marketing. In order to sell healthy products, Tesco can also
consider the use of Cost Leadership Strategy. This approach, which targets a
wider market and objects to present consumers with products at a low cost for a
given level of quality. In this regard, tesco can sell different products such
as pharmaceutical products either at average industry prices to earn higher
profit than their competitors, or below the average industry prices to be able
to gain market share. In the existence of price way, the company can also
maintain their profitability.

Enhanced
Online marketing approach

The trend
in the global market nowadays is the ability of the company to gather as much
clients through the use of e-marketing or online marketing approach. Tesco have
been able to see the advantages of these kind of marketing approach and in order
to sustain their competitiveness, it is recommended that they always adhere to
the changes in the external environment by considering efficient and modern
information technology facilities. Such can help the company enhance target
reach and also sustain global competencies.

Conclusion

This market report
focus on the analysis of the external environment Tesco and their marketing
approach. It can be said that long-term
development of the retailing sectors is one that is described by a series of
evolutionary periods that at times can best be described as radical in nature.
In the marketing analysis conducted. Tesco is one of the most competent retail
industry, but the company should not be over confident with their status. The
company is required to constantly be on the lookout for approaches and marketing
methods that would help them in sustaining their marketing competencies in spite
of the positive or negative situation of the external market. Such a big
industry like Tesco is faced with so many challenges at different angles, hence,
they should be able to foresee these problems and have contingency plans. The
use of SWOT and Porter’s five force model will help any company on identifying
the direction in which they are going to take through the analysis of external
environment and factors market operations and functions of the company.
Through this analysis, Tesco, can be determine their profit potential and other
approaches needed to sustain in their competitive position, with their
structural features. It can be said that the retailing sectors, that Tesco
belongs is highly appealing that contributes to a large share of their total
profits. With the changes in the global market, because of globalisation and
information technology, Tesco should have alternative approaches to secure their
competitive advantage.

By and large, it
can be said that Tesco is still one of the leaders in the retail market and
their ability to give consideration on the external environment made them
remained this way.